The former RBI governor reportedly said that banks extended more loans to prevent 'zombie' loans from turning non-performing assets.

Former RBI Governor Raghuram Rajan is said to have blamed the 'over optimism of bankers' and 'growth slowdown' for sky-high non-performing assets (NPAs) in his reply to 30-member Lok Sabha Committee on Estimates. The panel, headed by BJP veteran Murli Manohar Joshi, had asked Rajan for a briefing on the banking sector's mounting bad loans.

According to CNBC-TV18, Raghuram Rajan told the panel that banks didn't do 'due diligence' on large loans and relied on promoter, SBI Capital Markets and IDBI. The former RBI governor added that post-2008 slowdown made growth projections of banks unrealistic.

Rajan reportedly blamed the policy paralysis that delayed the ongoing projects due to slow decision-making in the UPA government after it was accused of various scams.

The former RBI chief is learnt to have said that banks extended more loans to prevent 'zombie' loans from turning non-performing assets. The laws didn't allow banks to seize property and banks chose to evergreen loans, Rajan reportedly told the committee.

Holding banks' management accountable, the former RBI boss said that high NPAs were due to bankers' exuberance, incompetence and corruption. He also blamed lack of monitoring and extending loans to companies which had history of defaults.

Bad loans touched Rs 8.99 lakh crore as of December 31, 2017, with PSBs accounting for over 86 per cent of the pie.

Rajan, who was RBI governor for three years till September 2016, is currently the Katherine Dusak Miller Distinguished Service Professor of Finance at Chicago Booth School of Business.

A member of the committee had earlier told India Today that Joshi wrote a letter to Rajan on August 7, where he said that the "committee admires his experience and knowledge and if he is unable to testify to the summons in person, the committee would like a written testimony of his expert view on the NPA crisis, how it has been created and how India should tackle it".

Niti Aayog vice chairman Rajiv Kumar had recently said that it wasn't demonetisation but deleveraging of credit under Rajan's tenure that led to economic slowdown.

Pinning the blame squarely on Rajan's policies as governor of central bank, Kumar had said the economic growth was declining due to rising NPAs in the banking sector. "When this government came into office, this figure was about 4 lakh crore. It rose to 10.5 lakh crore by the middle of 2017," he added.

"Under the former RBI Governor Raghuram Rajan, they had instituted new mechanisms to identify stressed and non performing assets. This is why the banking sector stopped giving credit to the industry. In fact, in some cases like MSMEs, credit growth shrank. Even in the large industries, the growth of credit came down to measly 1 per cent in some quarters," Niti Aayog vice chairman had claimed.

"This has been the highest deleveraging of commercial credit to the industry in India's economic history," Kumar had said.